| 6.7°C Dublin

Recovery is a game of two halves – but each half will last seven years

IT is not exactly a fond farewell. As Ireland looks forward to the possibility of life without the troika from next year, the message from the IMF seems to be: "You'll miss us when we're gone."

It is not what we want to hear – or maybe expected to hear. Ireland is praised around the globe for reducing its annual borrowing from 12pc of the economy's output in 2009 to an expected 3pc by 2015.

Its labour costs have fallen and its deficit in its dealings with the rest of the world has turned into a decent surplus. Better times, we are constantly told, are just around the corner.

The new report from the IMF (International Monetary Fund) says something different. Things may be about to get better – certainly to stop getting worse – but there is nothing much just around the corner.

Perhaps the most chilling forecast – especially for anyone in business – is that it could be 2024 before household spending, and by implication household living standards, is back to the levels of 2008.

So far, the Irish crash is distinguished by its depth rather than its length. The Swedish and Finnish economies began recovering three and five years after their banking crashes. The Irish economy has turned up five years after its collapse.

But the two Nordic economies grew strongly, whereas the Irish recovery is forecast to be weak. It does not help that the eurozone economy as a whole has not yet recovered – or even show much sign of doing so. But the main drag on the Irish economy is debt – both public and private. A 16-year downturn is a third of a working life – and at least three government lifetimes.

It is very difficult for individuals or their political leaders to contemplate such a prospect. Yet is it not an exceptional notion when confronted with debt at Irish levels.

One could almost say it's a game of two halves, if somebody hadn't already said that. The first half – seven years of it – was to get the budget deficit down to sustainable levels. The second is to do the same with debt.

Between government, families and firms, debt amounts to more than three years' economic output. The IMF fears that is too much to carry.

Many economists have said that since the beginning of the crisis, but practical politics dictated that the debt issue could not be tackled until the bailout programme was completed. The question is whether eurozone politics will allow it to be tackled now.

The IMF draws a clear picture of how debt could choke recovery: keeping consumers from spending as they struggle with mortgages and other debts, and cutting off credit to companies as banks labour under their burden of bad loans.

That is why the IMF wants mortgage relief speeded up. That does mean more repossessions and reduced living standards for those who could reasonably pay more than they have been doing.

But it is extraordinary how these two issues have dominated public debate, with hardly a mention of the amount of debt which is to be lifted off people's shoulders by the process.

As for government debt, there is an obvious escape route for Ireland because of the huge sums – more than €60bn – it has given the banks to save them from collapse. Replacing at least a significant amount of that from the European Stability Mechanism (ESM) could improve the country's growth prospects and ensure it avoids the disaster of a failed attempt to return to the markets.

After Cyprus, the chances of European assistance that looks even more remote than ever. Ireland will have to husband its resources, financial and political, to be ready for any eventuality.

Those government workers getting ready to vote on Croke Park II should read the report before deciding where their best choice lies.

Irish Independent